When it comes to rewarding whistleblowers, the IRS moves sluggish. Obtaining the IRS’s final rejection letter can take years. This can create frustration among Informants.

The IRS requested that the court return the matter to the IRS whistleblower office in Whistleblower 769-16W v. Commissioner, 152 T.C. 10 (2019) because the office had not sufficiently developed the case in the four years before rejecting the informant’s claim. The case portrays a guide for prospective informants regarding what to anticipate when filing IRS whistleblower claims.

Learn about IRS Tax Help Michigan

Details & Procedural Background

In 2010, the informant filed a paperwork for whistleblowers. The paperwork disclosed a transaction of three taxpayers involving tax evasion. But later, the informant included four more taxpayers.

The IRS audit function did not get the material from the IRS whistleblower office for nearly a year. The informant gave the data to a congressional committee one and a half years later. Based on the data, the committee published a report.

The IRS exam function returned the material to the IRS whistleblower office two years after it was submitted because it was “dated or unsubstantiated.” The IRS Whistleblower Office rejected the informant’s claim in a decision released about four years after the application.

Litigation ensued because the IRS did not sufficiently develop the case in the preceding four years. The IRS moved to have it remanded back to the IRS whistleblower office.

The Whistleblower Program of the IRS

The IRS has always had a whistleblower program. Congress established the program to give the government a way to compensate informants who expose tax evaders.

The IRS may pay the informant up to 15–30% of the total sum collected under the scheme. Depending on the extent to which the informant contributed to the tax recovery, the IRS may choose to reward within this range. The recovery can be huge in amount.

Whistleblower awards are rarely given out because of the way the IRS has managed the program. Even when they are, the payout is typically very low, and the reward is not given out until several years have gone.

Processing of Whistleblower Claims Delays

Until the funds are obtained from the taxpayer, the IRS cannot make an award. This typically entails the taxpayer using up all available administrative and legal options, as well as having the IRS undergo an audit.

The IRS’s lengthy claim processing process may potentially result in an extension of this time frame. In this particular court case, the IRS whistleblower office took nearly a year to provide the information to the IRS audit function. Knowing that the IRS will need to go through its process to assess and collect the tax from the taxpayer, that is a long time to wait.

In this instance, the court determines that remanding the matter is within its jurisdiction. This indicates that the matter will be returned to the IRS whistleblower office. The IRS and the informant were instructed by the court to agree on the claim processing timeline.